Noting that the outcome of ‘avoidance transactions’ cannot be given to the successful resolution applicant and must go to the company’s creditors, the National Company Law Appellate Tribunal (NCLAT) on Thursday asked DHFL lenders to reconsider their decision to allow the successful resolution applicant, Piramals, to appropriate such recoveries.
In its resolution plan, Piramals ascribed just `1 for future recoveries from such avoidance applications that amounted to Rs 45,050 crore. On June 7, 2021, the Mumbai bench of the National Company Law Tribunal (NCLT) had approved Piramal’s Rs 37,250-crore resolution plan for the bankrupt mortgage lender.
Even as it voted in favour of the resolution plan, debenture holder 63 Moons Technologies challenged the decision of the committee of creditors (CoC) before the Mumbai bench of NCLT. The NCLT, however, was “reluctant to substitute” its wisdom with the commercial wisdom of the CoC and therefore “restrained from making any comments”.
In the DHFL matter, avoidance transactions relate to preferential, undervalued, fraudulent transactions defrauding creditors, fraud & wrongful trading, etc by the erstwhile promoters.
However, the three-member NCLAT bench on Thursday said: “The term in the resolution plan that permits the successful resolution applicant to appropriate recoveries, if any, from avoidance applications filed under Section 66 (fraud and fraudulent transactions) of the Code ought to be set aside. The resolution plan be sent back to the CoC for reconsideration on this aspect.”
It also said the adjudicating authority should have decided whether the recoveries vested with the corporate debtor should be applied for the benefit of creditors of the corporate debtor, the successful resolution applicant or other stakeholders.
The NCLAT said, “The Respondents have also argued that the possibility of recovering monies from avoidance transactions is very low. However, the amount of the actual recovery that may be made in the future is entirely irrelevant. Since Respondent No. 2 (Piramal) has ascribed a value of Rs 1 to the avoidance transactions, Respondent No. 2 has not factored in the avoidance transactions in the resolution plan amount. Moreover, there is no material on record to suggest that the avoidance transactions have been factored in Respondent No. 2’s resolution plan.”
“Therefore, the oral contention of the Respondents that the avoidance transactions have been factored in the resolution plan amount is unsupported and not borne out from the material on record. Therefore, the present appeals ought to be allowed,” the NCLAT said.
In a statement, 63 Moons Technologies said, “With this order, now the CoC have to reconsider the provision of section 66 of IBC which mandates that the benefit should go to all the creditors of DHFL.”
The CoC had overlooked this provision to the benefit of Piramal Group. “If CoC considers this without alteration of provision of section 66of IBC, all creditors of DHFL will be benefited,” it said.
RBI had superseded the board of directors of DHFL through a notification on November 20, 2019. It filed a petition before the NCLT under the insolvency code which was admitted on December 3, 2019.